Learning the lessons on how to avoid rising repossessions
21 Jul 2016
‘What does Brexit mean for you?’ Unsurprisingly, this has been a popular topic in newspapers of late, with much attention paid to the potential impact of Brexit on mortgage holders. In times of economic uncertainty many – understandably – fear that we’ll see a return to the sky high interest rates and repossessions that knocked homeowners during the 90s downturn.
But the experience of the more recent recession following 2008 gives us reason to be optimistic – adverse outcomes can be avoided if the will is there to act quickly. Then, repossessions stayed well below previous peaks and homeowners proved far more resilient than feared, with the Council for Mortgage Lenders consistently revising down its forecasts.
This was enabled in large part by a combination of historically low interest rates, lender forbearance and the government stepping in quickly with various safety nets.
Fast forward several years and interest rates remain low and there’s little sign of that changing any time soon. In fact, perversely, in some respects a bigger concern is the number of buyers who have no experience of rate rises and are unprepared for the volatility this can bring to housing costs.
Other factors also remain in homeowners’ favour. In the immediate aftermath of the 2008 crash, lenders signed up to protocols on how they should deal with households in arrears. This ‘Pre-Action Protocol’ remains in place and will further help ensure that households are dealt with fairly if they do start to struggle.
The evidence Shelter sees from our services is that lenders are still acting responsibly in the main – although some sharp practice remains. This too has been a welcome move which has inadvertently thrown up difficult challenges, as banks and policy makers respond to the question of how to assist households with unsustainable arrears out of homeownership.
Economic uncertainty risks reducing family incomes, so what safety nets can homeowners expect if they lose their job or suffer a drop in earnings?
Both the Labour and Coalition governments responded swiftly to the 2008 downturn by strengthening safety nets: Support for Mortgage Interest (SMI), which helps some low income households with their mortgage costs, was made more generous; the Preventing Repossession Fund enabled local authorities to help households struggling with arrears; and the Mortgage Rescue Scheme gave people a route out of ownership when it had become untenable, as well as improving access to much-needed advice.
These schemes were rolled back as economic conditions returned to normal. The last to go was the more generous rules for SMI. From April 2016 borrowers have had to wait 39 weeks after losing a job to claim SMI, rather than the shorter 13 weeks introduced as an emergency measure. If things are in fact not ‘normal’ again we’d hope to see this change reversed quickly.
More significantly, SMI itself will change fundamentally from 2018 when it ceases to be a benefit (paid on top of benefits such as Income Support) and will instead become a loan secured against a property. In principle, Shelter doesn’t object to this. SMI will help homeowners retain their asset and it’s not unreasonable that the burden be shared. But such a big shift could become difficult to manage if it coincides with a rise in demand.
When it comes to repossessions, successive governments have shown a willingness to shore up faltering homeowners. We would hope that the new government would also act quickly if arrears and repossessions show signs of rising. Here Shelter has a valuable perspective as a service provider and we are well placed to share any emerging insights with government so that safety nets can be strengthened and more families can avoid the loss of their home.